Investing Research Articles

Does the credit premium, measured by the difference in returns between U.S. corporate bonds and duration-matched U.S. Treasuries, exhibit momentum? In his December 2016 paper entitled “Momentum in the Cross-Section of Corporate Bond Returns”, Jeroen van Zundert tests for momentum of the volatility-adjusted credit premium among U.S. corporate bonds via the following methodology: Acquire the monthly… Keep Reading

How many factors are optimal for modeling future returns of individual stocks? How do these factors relate to conventionally used factors (market, size, value, momentum, investment, profitability…)? In the June 2016 version of their paper entitled “Multifactor Models and the APT: Evidence from a Broad Cross-Section of Stock Returns”, Ilan Cooper, Paulo Maio and Dennis Philip derive… Keep Reading

Do any equity asset allocation strategies convincingly outperform equal weighting (1/N) after accounting for data snooping bias and portfolio maintenance frictions? In their December 2016 paper entitled “Asset Allocation Strategies, the 1/N Rule, and Data Snooping”, Po-Hsuan Hsu, Qiheng Han, Wensheng Wu and Zhiguang Cao apply tests based on White’s Reality Check to compare out-of-sample performances of 23… Keep Reading

Do stocks with expectations of high capital expenditures (growth opportunities) outperform those with expectations of low capital expenditures? In their December 2016 paper entitled “Expected Investment Growth and the Cross Section of Stock Returns”, Jun Li and Huijun Wang examine the power of expected investment growth (EIG) to predict cross-sectional stock returns. They construct EIG for each stock… Keep Reading

Does the S&P 500 implied volatility index (VIX) exhibit reliable intraday and day-of-week patterns? In their December 2016 paper entitled “The Intraday Properties of the VIX and the VXO”, Adrian Fernandez-Perez, Bart Frijns, Alireza Tourani-Rad and Robert Webb investigate daily and intraday properties of VIX and its predecessor, the S&P 100 implied volatility index (VXO). VIX maintains constant… Keep Reading

Do specific stocks react differently to economic uncertainty? In their December 2016 paper entitled “Is Economic Uncertainty Priced in the Cross-Section of Stock Returns?”, Turan Bali, Stephen Brown and Yi Tang investigate the role of economic uncertainty in the cross-sectional pricing of individual stocks. They measure economic uncertainty monthly as an aggregation of the volatilities of the unpredictable components… Keep Reading

Do investors treat stock dividends as part of total returns, or do they view them as a separate income stream? In their December 2016 paper entitled “The Dividend Disconnect”, Samuel Hartzmark and David Solomon investigate whether trading and pricing of stocks exhibit a “free dividend” fallacy (disregard for the fact that dividends directly debit stock price… Keep Reading

Do hedge fund managers who seek excitement as indicated by choice of cars invest differently from those who do not? In their December 2016 paper entitled “Sensation Seeking, Sports Cars, and Hedge Funds”, Yan Lu, Sugata Ray and Melvyn Teo investigate the relationship between hedge fund manager personal car selection (body style, maximum horsepower, maximum torque, passenger volume… Keep Reading

How should investors balance expected return and expected risk in allocating between risky and risk-free assets? In their short December 2016 paper entitled “Optimal Trade Sizing in a Game with Favourable Odds: The Stock Market”, Victor Haghani and Andrew Morton apply a simple rule of thumb related to mean-variance optimization to estimate the optimal allocation to risky assets…. Keep Reading

Is the relationship between Cyclically Adjusted Price to Earnings Ratio (CAPE, or P/E10) and future long-term stock market returns evidence of market inefficiency? In other words, can investors exploit P/E10 to beat the market? In their November 2016 paper entitled “Shiller’s CAPE: Market Timing and Risk”, Valentin Dimitrov and Prem Jain examine whether investors with a 10-year investment… Keep Reading